It can be argued that the use of stock prices of publicly-owned companies to estimate
the market value of privately held companies is a source of comparable data. However,
many Business Appraisers realize that to estimate the market value of a privately
held Business by using this data is seriously flawed in several respects:

1. Publicly held companies, whose stock is listed on the major exchanges,

are usually much larger than the closely-held Businesses that are being

appraised. This difference is size raises serious questions as to whether

the two are, in fact, comparable.

2. Prices of publicly traded stock reflect the sale of very fractional

ownership interests. On the other hand, the Appraiser’s objective is

usually to estimate the market value of a major ownership interest,

frequently, one hundred percent ownership of the closely held Business.

4. The price to earnings ratio represents the ratio of a current stock to an

earnings-per-share figure that can be from a few weeks to several

months old.

5. Probably the greatest fallacy of attempting to use publicly traded stock

prices to estimate the value of a closely held Business lies in the

psychology of the investor. The potential for a closely held Business is almost
always concerned

with the anticipated performance of the Business itself.

Of course, it is sometimes argued that the trend of stock prices of a publicly held
company is strongly influenced by the company’s performance. However, it is demonstrable
that, whereas this does tend to be true in the long run, there are many influences
on stock that tend to be of short-term nature, and that strongly influence stock
prices while bearing relatively little long-term relationship to the company’s performance.
Therefore, using the prices of publicly traded stocks is not recommended as a means
of estimating the value of closely held Businesses.

Comparable Transactions

Still another source of market data is, of course, information on actual sales of
companies, such as the subject, in the Appraiser’s local community. It is unlikely,
however, that there will be enough information available on sales similar to the
subject to provide a statistically sound basis for estimating the Business’s market
value. However, as mentioned above, when analysis based on research on potential
buyers for this kind of investment is made, important insight into what a buyer is
willing to pay for a particular Business can assist the Appraiser in determining
an accurate opinion of value. This analysis must include such factors as industry
risk, the local and national economy, competition, barriers to entry, and the future
potential of Greeting and Name.